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Asian stocks drop despite strong tech earnings data

Asian stocks drop

MSCI’s widest Asia Pacific index outside Japan shed 0.35%, squeezing Taiwan’s stocks to drop 1.2%

Asian stocks dropped on Friday as Taiwanese chip giant TSMC’s profit-taking sales squeezed broader risk sentiment with other tech companies.

MSCI’s widest Asia Pacific index outside Japan shed 0.35%, squeezing Taiwan’s stocks to drop 1.2% after TSMC’s earnings on Thursday.

TSMC declined nearly 4% on Thursday’s earnings.

While the world’s largest contract chip maker has seen record quarterly sales and forecasts revenue growth this quarter, investors are making profits.

The earnings are great and the market seems a bit overreacting to me, said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities. But the decline in profit margins has led to the view that growth momentum could peak.

The fall in TSMC put pressure on many other semiconductor-related stocks in the region, with South Korea’s Kospi down 0.6% and Japan’s Nikkei down 1.1%.

On Thursday, S&P 500 dropped 0.33% and the Nasdaq Composite Index shed 0.70% on weakness in chip-related stocks.

While these indices remained close to record levels, supported by economic recovery prospects, investors were wary of more risky and illiquid assets.

The Russell 2000 Index for small caps in the US declined 0.6% to a two-month low.

Investors flocked to bonds after Federal Reserve Chairman Jerome Powell reiterated that rising inflation was likely to be temporary and that the U.S. central bank would continue to support the economy.

On Wednesday, Powell promised “strong support” to complete the US economic recovery from the pandemic.

Yields on 10-year Treasuries dropped to 1.302%, nearing the 1.250% lows reached last week in five months.

Yields on inflation-protected US Treasuries dropped to -1.043%, the lowest in five months.

Bond yields have dropped, even though data earlier this week showed that the US consumer price index reached its highest level in 13 years.

Arihiro Nagata, General Manager of Global Investment, Sumitomo Mitsui Banking Corporation, said: When there is such a massive mitigation, you can’t fight the Fed.

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